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June 26, 2018

Could the Irish border issue trigger a no-deal Brexit?

The Irish backstop remains unresolved. And it may well be the issue on which an orderly Brexit could flounder, as Tony Connelly has warned in his RTE column. Ahead of the EU summit we see that the EU and the UK are hardening their positions. Though Brexit will not be the main issue of the summit, it will register the EU's frustration over the lack of progress over Ireland and a warning that the two year transition is at risk and that countries will start to prepare for a no-deal. 

We expect that the Irish border issue will not be solved until the very last minute in autumn, and that polarisation continues until then. Irish and EU officials worry that the UK seems determined to link the withdrawal agreement with a political declaration on the future relationship between the EU and the UK beyond Brexit. The EU sees this as only a political statement of intent that is big on aspiration and short on details and that is prone to change. 

London sees this completely the other way. The UK government insists that for a withdrawal agreement there has to be plenty of details about the future trade arrangement in the declaration, otherwise the British parliament may not accept the withdrawal agreement. Crucially, they also want to link the Irish backstop to the political declaration. Their argument is that Dublin would want the border issue to be resolved through the future trade deal, not least because East-West trade is more important than North-South trade.

The Irish government has a totally different view on this. They want a backstop agreement irrespective of the political declaration or a trade deal. Ireland and the EU insist that a backstop will have to be legally operational until something better is agreed. 

They also insist that a frictionless border between Northern Ireland and the UK was a promise by London not Ireland or the EU and is thus a matter for the UK to solve. The UK on the other hand dismisses the Commission's version as it undermines the Good Friday agreement and the constitutional status of Northern Ireland - a claim strongly denied by Ireland. The Commission sees its proposal as the only way forward to reconcile the two governments' promises with the integrity of the single market. 

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June 26, 2018

Is Harley-Davidson's decision really a victory for the EU?

We were somewhat surprised by the knee-jerk reactions to the announcement by Harley-Davidson that it is shifting part of its production outside the US as a result of EU counter-tariffs. FAZ writes that the EU's move shows its first success. Is this really a sign that EU policy is working? Is this really what the EU intended to achieve?

We think that the move will, if anything, underline Donald Trump's mercantilist views that tariffs are working. If tariffs get Harley Davidson to shift some of its production, would the same not apply to German car makers, the most likely target in the next stage of the transatlantic trade war? Would this not encourage Trump even more? 

The EU's counter-tariff on Harley-Davidson was not meant to bring Harley-Davidson to Europe, but to hurt them and the Republican congressional district that surrounds Harley-Davidson's factory. 

We also noted that the Ifo index continued its descent in June - falling for the sixth time in the last seven months. This morning the Ifo export-index also nose-dived, for the seventh month in succession. And it is now affecting the car industry.

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